Antitrust in the United States and European Community ...These laws and enforcement authorities are not limited in their effects to the United States. Enforcement efforts of the Antitrust

Antitrust in the United States and European Community:Toward a Bilateral Agreement

I. INTRODUCTION

Citing dramatically increased imports and decreased exports in themachine tool industry, semiconductor market, television market andauto parts industries, a U.S. Senator recently described America'sindustrial base as "in peril". 1 A widely held perception ascribes thisdecline in American business to foreign rivals' immunity from Americanantitrust laws.2 Specifically, it is felt that foreign business rivals arepermitted to prey on American consumers while remaining immunefrom the antitrust burden borne by American companies, and that thisinequity renders domestic firms disadvantaged on the global market.'

These perceptions may be aggravated by the impending economicunion in Europe. By December 31, 1992, twelve European Countrieswill join economic forces to become one of the most formidable entitiesin the economic world, the European Economic Community (EEC). 4

Companies operating in the United States will find themselves tradingamong and competing with a unified market of 325 million consumerswith an average per capita income of $14,500.- It is predicted thatEuropean businesses will emerge in 1993 larger, more efficient, andmore profitable than ever before in world economic history.6 Giventhat the largest commercial partner of the United States is the EuropeanCommunity,' it is axiomatic that changes in the European Community

1. Hearing Before the Consumer Subcomm. of the Senate Commerce, Science, and Trans-portation Comm., 101 Cong., 1st Sess. [hereinafter Hearings] (statement of Senator Bryan).

2. Id.3. Id. at 2.4. The following countries have joined the EEC: France, Italy, Germany,

Belgium, the Netherlands, Luxembourg, Denmark, Greece, Ireland, Portugal, Spain,and the United Kingdom. Caterina Cregor, An Overview of the European Economic Com-munity and Eastern Europe: Trade Opportunities, INTERNATIONAL LAW, ADVISING CLIENTSTRADING WITH EEC AND EASTERN EUROPE, Indiana Continuing Legal Education Foun-dation (1990) [hereinafter Cregor].

5. Id.6. Id.7. Id. In 1989, one of every four dollars of export earnings by United States

companies was earned in trade with Europe, for a total of $87 billion. Moreover,direct world investment in the United States is led by Europe, as seven of the topten investing countries are European. European investments in the United States areled by the United Kingdom, the Netherlands, and the Federal Republic of Germany.Export sales of EEC companies in the United States are close to $400 billion. Id.

IND. INT'L & COMP. L. REV.

will affect foreign as well as domestic operations of United Statesbusinesses.

While a strident commitment to free and open competition is oneof the historical bedrocks of U.S. economic success,8 the EuropeanCommunity has just begun to enter the market regulation arena. Rel-ative to institutionalized U.S. merger control policies and law, whichhave matured throughout over a century of practical application, mergercontrol in the European Economic Community is a new and developingphenomenon. Member states' commitment to free trade is evidencedin their unifying treaty, which, in Article 3, proclaims, "[t]he activitiesof the Community shall include... the establishment of a systemensuring that competition shall not be distorted in the CommonMarket. . . . "9 Given that the volume of international commercial ac-tivity affecting both the United States and the European EconomicCommunity is worth close to a trillion dollars annually, 0 domestic firmson both sides of the Atlantic are potentially subject to multiple antitrustreviews which apply differing criteria.

Although the EEC Merger Control Regulation has been in forcejust over one year," Sir Leon Brittan, Vice President of the Commissionof the European Communities, has already proposed a bilateral agree-ment between the United States and the European Community toprovide for more uniform decisions in the competition field. 12

Approaches to such a bilateral agreement could take innumerableshapes. This note will highlight the need for a bilateral agreementbetween the United States and the European Economic Communitythrough an analysis of jurisdictional and substantive issues in the com-

8. The Sherman Act was passed over one hundred years ago, in 1890, inresponse to rapid industrialization and increasing concentration in the petroleum,tobacco, cotton oil, linseed oil, and paper industries. D.M. RAYBOULD & ALISON FIRTH,

COMPARATIVE LAW OF MONOPOLIES 11 (1991).9. Treaty Establishing the European Economic Community (EEC), Mar. 25,

1957, 298 U.N.T.S. 11 [hereinafter Treaty of Rome] (elipse added).10. Cregor, supra note 4.11. Although the origins of the EEC Merger Control Regulations date to 1973,

when the Council of the European Communities considered a proposal by the Com-mission of the European Communities to regulate the concentrations of undertakingsin the EC, Council Regulation 4064/89 of 21 December 1989 on the Control ofConcentrations Between Undertakings did not enter into force until September 21,1990. See Mark Dassesse, Selected Aspects of the European Economic Community Law onInvestments and Acquisitions in Europe, 25 INT'L LAW., 375, 376 (1991) citing 1990 O.J.(L 257) 13.

12. Id. at 386.

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U.S./E.E.C. ANTITRUST

petition field, with an emphasis on mergers and acquisitions. Theprimary focus will be on the need to build a preliminary foundationof understanding in the areas of antitrust enforcement jurisdiction,substantive merger review, and international discovery needs. Thesethree basic foundations are proposed as fundamental prerequisites tonegotiations of a bilateral agreement; while by no means exhaustive,clarification of these three areas is offered as a preliminary frameworkupon which to base treaty discussions in the future.

II. ANTITRUST ENFORCEMENT: JURISDICTIONAL PREMISES

While the need for an agreement allocating jurisdiction betweenU.S. and EEC authorities in competition cases has been expressed,13

fruitful discussions on the proposal cannot be held until jurisdictionalissues are viewed with uniformity by differing authorities within thesame country. Treaty negotiators cannot expect to exact consensus onthe allocation of jurisdiction between their respective states if they bringto the table discordant views of their own country's approach to suchdisputes.

A. Antitrust laws and jurisdiction in the United States

United States free market competition was recognized as an im-portant foundation of commercial success in the United States as earlyas 1890 with the passage of the Sherman Act.14 Today, those principlesare embodied in the U.S. antitrust laws, which solidly commit ournation to a free market economy "in which the competitive process ofthe market ensures the most efficient allocation of our scarce resourcesand the maximization of consumer welfare."' 5 The primary thrust ofSection 1 of the Act is to prohibit contracts, combinations, or con-spiracies in restraint of trade or commerce. 16 The Act supplies the basisfor extraterritorial application of the law by proscribing such acts as"among the several states or with foreign nations."' 7 In Section 2, theAct makes it illegal for anyone to either attempt to or to monopolizeany part of the United States interstate trade or commerce.18 TheSherman Act is a criminal statute, but tends to be enforced in civil

13. Id.14. RAYBOULD, supra note 8.15. 6 THE DEPARTMENT OF JUSTICE MANUAL 7-1.100 (Supp. 1990-1).16. RAYBOULD, supra note 8.17. 15 U.S.C. S 1, Pub. L. No. 101-588, § 4(a), 104 Stat. 2880 (1988).18. RAYBOULD, supra note 8.

19921

IND. INT'L & CoMP. L. REV.

proceedings brought by the Justice Department or by a State AttorneyGeneral.1 9 Section 73 of the Wilson Tariff Act of 189420 prohibits animporter of goods into the United States from combining or contractingto create anti-competitive consequences in the domestic market. Section5 of the Federal Trade Commission Act proscribes "unfair methodsof competition" and "unfair or deceptive acts or practices,' '21 vestingenforcement authority under Section 5 with the Federal Trade Com-mission, although no private action exists under this Section. 22

The most important antitrust statute to be passed after the ShermanAct is the Clayton Act of 1914.23 Price discrimination by a seller ofcommodities of like grade and quality is proscribed, as is the condi-tioning of sales upon the agreement that the buyer not use or deal inproducts of competitors of the seller. 24 The Clayton Act confers subjectmatter jurisdiction over a "person engaged in commerce," and includesin that definition those "corporations and associations existing underor authorized by. . . the laws of any foreign country. "25 The burdenof proof under the Clayton Act is said to be lighter than the burdenunder the Sherman Act, the latter requiring a showing of actual anti-competitive consequences.2 6 In 1976, the Hart-Scott-Rodino AntitrustImprovement Act added a new Section 7(a) to the Clayton Act, requiringthat plans for certain acquisitions and mergers be communicated to the

19. Id. at 13. Additionally, a private suit seeking three times the actual damagesmay be brought by a victim harmed by the prohibited behavior. See also supra note16, where the the role of the Antitrust Division of the Department of Justice isestablished first as an enforcement agency, prosecuting civil and criminal violations

under the Sherman and Clayton Acts, and secondly as an advocater, appearing beforeCongressional committees and federal regulatory agencies to articulate pro-competitive

policies.20. 15 U.S.C. S 8 (1982). Violation of the Act is a misdemeanor, carrying a

maximum penalty of $5,000 and/or one year in jail. Section 11 provides for seizureof the imported article. See also BARRY E. HAWK, UNITED STATES, COMMON MARKET,

AND INTERNATIONAL ANTITRUST: A COMPARATIVE GUIDE 33 (2nd ed. 1986), noting,"The antitrust provisions of the Wilson Tariff Act have received little more thanpassing comment from the courts. Courts have treated the Act as simply a more

specific application of the Sherman Act to import restraints."

21. 15 U.S.C. S 45(a)(1), Pub. L. No. 100-86, 101 Stat. 655 (1987).22. Id.23. 15 U.S.C. S 12, Pub. L. No. 94-435, 90 Stat. 1397 (1991).24. Id.

25. Id. (elipse added).26. RAYBOULD, supra note 8, at 61. This showing is not required in offenses

under Section 1 of the Sherman Act providing for per se presumptions of anti-competitive effects. Id.

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U.S./E.EC. ANTITRUST

Federal Trade Commission and the Antitrust Division of the Depart-ment of Justice."

The United States Department of Justice Antitrust Division andthe Federal Trade Commission (FTC) are responsible for enforcing thefederal antitrust laws. The Federal Trade Commission Act, providesauthority of the FTC in section 5, giving the FTC jurisdiction over"unfair methods of competition in or affecting commerce.' '28 The FTCalso has enforcement responsibility under Sections 2, 3, 7, and 8 ofthe Clayton Act, covering price discrimination, tying and requirementscontracts and anticompetitive acquisitions of stocks or assets, and inter-locking directorates respectively.

The Antitrust Division of the Department of Justice is responsiblefor coordinating enforcement efforts, with jurisdiction to enforce pros-criptions against private restraints of trade (such as price-fixing, bid-rigging, and other collusive arrangements among competitors) thatunreasonably impede the free forces of the market. 29 While enforcementof the Sherman Act is the primary role of the Division, it also sharesconcurrent jurisdiction over Section 7 of the Clayton Act (mergers)with the FTC.30

These laws and enforcement authorities are not limited in theireffects to the United States. Enforcement efforts of the Antitrust Divisionsometimes reach foreign defendants and conduct that occurs beyondthe territorial boundaries of the United States.' The Foreign Trade

27. Id. Title I (of the Act) is procedural: it amplifies the powers of the De-partment of Justice given under the Antitrust Civil Process Act 1962 to issue a civilinvestigative demand requiring disclosure of information prior to commencing anyantitrust proceedings. Title II amends the Clayton Act Section 7 by requiring pre-merger notification. Title III provides for actions parens patriae on behalf of personsresiding in a State by the State Attorney-General in respect of violations of the ShermanAct. Id.

28. 15 U.S.C. 5 45(a)(1) (1987).29. HAWK, supra note 20, at 32.30. Although beyond the scope of this discussion, it may be argued that the

FTC, since a legislatively mandated, independent agency, enjoys more autonomy thanthe DOJ Antitrust Division, which, as a part of the Executive branch, may be moresusceptible to political persuasion.

31. ANTITRUST ENFORCEMENT GUIDELINES FOR INTERNATIONAL OPERATION, supranote 15, at 7-244.99.

"Just as the acts of U.S. citizens in a foreign nation ordinarily are subjectto the law of the country in which they take place, the acts of foreigncitizens in the United States ordinarily are subject to U.S. law. The reachof the U.S. antitrust laws is not limited solely to conduct and transactionsthat occur within the United States, however. Conduct relating to U.S.

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Antitrust Improvement Act provides that the Sherman Act applies toanti-competitive export conduct of U.S. firms when that conduct wouldhave a direct, substantial, and reasonably foreseeable effect on tradeor commerce within the United States or on import trade or commerce. 32

B. Antitrust laws and jurisdiction in the EEC

The Treaty of Rome33 establishes a common market of goods,services and agricultural products. The EEC is targeted to materializeDecember 31, 1992 among twelve European countries.3 4 Article 3 ofthe Treaty provides that the EEC will, among other activities, establish''a system ensuring that competition shall not be distorted in theCommon Market." 35 Importantly, Community law is said to enjoyprimacy over national laws of the respective member states, each ofwhich have varying standards and interpretations of free market com-petition. "By contrast with ordinary international treaties, the EECTreaty has created its own legal system, which, on the entry into forceof the Treaty, became an integral part of the legal systems of theMember States and which their Courts are bound to apply. ' '

16

Promotion of free markets and the preservation of competitionwithin the European markets unified under the treaty fall largely under

import trade that harms consumers in the United States may be subjectto the jurisdiction of the U.S. antitrust laws regardless of where suchconduct occurs or the nationality of the parties involved.

Id.32. Id. at 7-244.101. But cf. RESTATEMENT (THIRD) OF THE FOREIGN RELATIONS

LAW OF THE UNITED STATES (1987) S 808-2 (Emergency Action to Protect DomesticProducers):

Under the law of the United States, upon a finding by the InternationalTrade Commission that increased imports are a substantial cause of seriousinjury or threat of serious injury to domestic producers, the President mayprovide relief to affected domestic parties by (a) restricting imports throughtariffs or quantitative restrictions, or (b) negotiating an orderly marketingagreement.

With respect to the latter, the Trade Expansion Act of 1962, 19 U.S.C. § 1982,authorizes the President to negotiate marketing agreements with foreign countries,while an agreement with private foreign producers is not within the President's authorityunder the Act, and such an arrangement might constitute restraint of trade in violationof the Sherman Act. Id., reporters' note 5, citing Consumers Union v. Kissinger, 506F.2d 136 (D.C. Cir. 1974), cert. den., 421 U.S. 1004 (1975).

33. Treaty of Rome, supra note 9.34. Cregor, supra note 4, at 4.35. Treaty of Rome, supra note 9, art. III.36. RAYBOULD, supra note 8, at 184, citing Case 6/64, Coasta v. Enel, C.M.L.R.

455, 456 (1964).


the ambit of articles 85 and 86. Article 85 declares agreements amongundertakings that substantially restrict competition within the EECvoid. 7 Prohibited are cartel-type arrangements between two or moreundertakings having an anti-competitive object or effect, and whichmay affect interstate trade . 8 The prevention, restriction, or distortionof competition within the common market is specifically prohibited. 9

Nevertheless, the prohibition may be declared inapplicable under par-agraph 3 of article 85 when the activity contributes "to the improvementof the production or distribution of goods or to the promotion oftechnical or economic progress ... "40

Article 86 prohibits abuse of a dominant position within the EEC,4"and unlike article 85 contains no exceptions for behavior the positiveeffects of which outweigh the negative. 42 Article 86 prohibitions applyto abuses which occur within the Common Market, prohibiting theminsofar as they may affect trade between Member States. 43

37. Marc Dassesse, Selected Aspects of European Economic Community Law on In-vestments and Acquisitions in Europe 25 INT'L LAW. 375, 376 (1991).

38. RAYBOULD, supra note 8, at 186.39. Treaty of Rome, supra note 9, art. 85 provides in relevant part:1. The following shall be deemed to be incompatible with the CommonMarket and shall hereby be prohibited: any agreements between enterprises,any decisions by associations of enterprises and any concerted practiceswhich are likely to affect trade between the Member States and which haveas their object or result the prevention, restriction or distribution of com-petition within the Common Market, in particular those consisting in:

a. the direct or indirect fixing of purchase or selling prices or ofany other trading conditions;b. the limitation or control of production, markets, technical de-velopment or investment;c. market-sharing or the sharing of sources of supply;d. the application of parties to transactions of unequal terms inrespect of equivalent supplies, thereby placing them at a competitive

disadvantage; ore. the subject of the conclusion of a contract to the acceptance bya party of additional supplies which, either by their nature oraccording to commercial usage, have no connection with the subject

of such contract.2. Any agreements or decisions prohibited pursuant to this Article

shall be null and void.40. Treaty of Rome, supra note 9, art. 85, 3.41. Dassesse, supra note 38, at 377.42. Id. at 376.43. RAYBOULD, supra note 8, at 187. The full text of Article 86 provides:To the extent to which trade between any Member States may be affected

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The sufficiency of articles 85 and 86 in their ability to protect freemarkets has been reviewed and found wanting. According to a Europeanprofessor of law, "[articles 85 and 86] are limited and technicallyinadequate to do the job. For example, article 86 may not apply ifthere is no preexisting dominant position, and article 85 may not applyif there is no agreement between undertakings to start with." ' 44

Moreover, mergers of companies the effects of which reach beyondthe borders of the host nation have been potentially subject to reviewby a number of EEC competition authorities, both at the Commissionand the Member State levels. 45 Perhaps arising from exigencies notedabove, the EEC Merger Control Regulation, which entered into forceon September 21, 1990, clearly delineates jurisdiction and authorityover mergers, providing circumstances under which the Commissionof the European Communities has sole jurisdiction over merger re-gulations, subject to review by the Court of Justice. 46

The principal institutions of competition enforcement are the Coun-cil of Ministers, the Commission, the Directorate General IV, and the

thereby, action by one or more enterprises to take improper advantage ofa dominant position within the Common Market or within a substantialpart of it shall be deemed to be incompatible with the Common Marketand shall hereby be prohibited. Such improper practices may, in particular,consist in:a. the direct or indirect imposition of any inequitable purchase or sellingprices or of any other inequitable trading conditions;b. the limitation of production, markets or technical development to theprejudice of consumers;c. the application to parties to transactions of unequal terms in respect ofequivalent supplies, thereby placing them at a competitive disadvantage;ord. the subjecting of the conclusion of a contract to the acceptance, by aparty, of additional supplies which, either by their nature or according tocommercial usage, have no connection with the subject of such contract.44. Dassasse, supra note 37, at 377.45. Id. at 378.46. Id., citing Council Regulation 4064/89 of 21 December 1989 on the Control

of Concentrations between Undertakings, 1990 O.J. (L 257) 33 [hereinafter CouncilRegulation]. The Council Regulation provides, in art 21:

1. Subject to review by the Court of Justice, the Commission shall havesole jurisdiction to take the decisions provided for in this regulation [formergers exceeding the minimum turnover criteria laid down by the Reg-ulation and thus having a "community dimension".]2. No member state shall apply its national legislation on competition toany consideration [concentration] that has a community dimension.

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Court of Justice of the European Communities. 47 Competition rule-making authority rests with the Council of Ministers. 48 Enforcementof EEC competition policy rests with the Commission and the Direc-torate General IV.49 Finally, as noted above, the Court of Justice hasthe authority to review decisions rendered by the Commission.

C. Extraterritorial Jurisdiction and Customary International Law

Were international competition regulations in accord throughoutthe world, and were extraterritorial jurisdictional provisions among thestates clearly and historically delineated, customary international lawwould neatly prescribe jurisdictional and substantive disposition of in-ternational merger disputes. "It would be difficult, perhaps impossible,to find a national legal system the courts of which arbitrarily refusedto apply rules of customary international law not in conflict withdomestic law. .. ."50 However, there is relatively little customary in-ternational law of economic relations, 51 and developing theories sup-porting application of domestic law to foreign transactions reflectambiguous and sometimes conflicting approaches.

While the Sherman Act expressly applies to restraints of trade withforeign nationals,5 2 a federal court first held the Sherman Act applicableto conduct outside the United States where acts evidenced both anintent to and an effect on United States domestic or foreign commerce. 5

Likewise, in Beguelin Import Co. v. S.A.G.L. Import Export, an actionchallenging an exclusive distribution agreement between a CommonMarket state and a non-common market state, the European Court ofJustice held, rather summarily, that effects felt within the EuropeanCommunity sufficed to give the court jurisdiction to adjudicate the

47. 2 BARRY HAWK, UNITED STATES, COMMON MARKET, AND INTERNATIONAL

ANTITRUST: A COMPARATIVE GUIDE 3-5 (2d. ed. Supp. 1990).48. Treaty of Rome, supra note 9, art. 87.49. Hawk, supra note 48, at 4.50. JOSEPH M. SWEENEY ET AL., THE INTERNATIONAL LEGAL SYSTEM, CASES AND

MATERIALS 9 (3d ed. 1988).51. RESTATEMENT (THIRD) OF FOREIGN RELATIONS LAW OF THE UNITED STATES

261 (Introductory Note 1987).52. See supra note 17 and accompanying text.53. United States v. Aluminum Co. of America, 148 F.2d 416, 443 (2d. Cir.

1945), stating that "any state may impose liabilities, even upon persons not within itsallegiance, for conduct outside its borders that has consequences within its borders whichthe state reprehends; and these liabilities other states will ordinarily recognize." Id.

(emphasis added).

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matter within article 85 of the Treaty of Rome.5 4 While the BeguelinCourt was primarily concerned with whether the parent-subsidiarycompany relationship satisfied the article 85 requirement of an agree-ment between undertakings and whether the exclusive dealership wasamenable to an exception provided in an implementing regulation, itsimply concluded that the fact that one of the firms involved was aJapanese firm was of no importance so long as it was established thatcompetition within the territory of the Community suffered and thatthe agreements in question affected trade between Member States. 5

1 Inthis case, a Japanese firm, Oshawa, had granted exclusive distributionrights to Beguelin Imports5 6 for the distribution in France and Belgiumof lighters bearing the Oshawa mark. The European Court of Justicefound the exclusive agency agreement between a non-EEC memberproducer and EEC distributor prohibited by article 85 (1) when itobstructs, "de jure or de facto" the distributor's re-exportation of theproducts in question to other member-states, or when it prevents theproduct from being imported from other member-states into the pro-tected zone and being distributed there by persons other than theconcessionnaire or his customers.5 7

Both the United States Alcoa case and the European Court ofJustice Beguelin Import case support application of domestic antitrustlaws to conduct involving foreign firms pursuant to the "effects doc-trine." Both approaches are consonant with international law as artic-ulated in the Restatement of Foreign Relations, which provides that"[A] state has jurisdiction to prescribe law with respect to . . . conductoutside its territory that has or is intended to have substantial effectwithin its territory.' '58

Within this broad parameter, however, remains a great deal oflatitude for weighing when and in what circumstances domestic antitrust

54. Case 22/71, Beguelin Import Co. v S.A.G.L. Import Export, 1971 E.C.R.949, 1972 C.M.L.R. 81.

55. Id. at 954.56. While the original agreement was with the Belgian parent company, the

French subsidiary Beguelin Import Co. of France, took over the exclusive concessionin France. The dispute arose when Beguelin sought injunctive relief to prevent a thirdcompany, G.L. Import Export, of Nice, from marketing the articles in France. G.L.Import Export responded to the injunction by asserting that the exclusive concessionbetween Oshawa and Beguelin France violated Art. 85, as constituting an obstacle tofreedom of trade within the Community. Id. at 950, 951.

57. Id. at 970.58. RESTATEMENT (THIRD) OF THE FOREIGN RELATIONS LAW OF THE UNITED

STATES § 402 (1987).

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laws will be applied to conduct occurring within the territory of anothernation when the interests of both (or multiple) nations are affected. Itis in this arena- where dual and equal grounds exist to supportapplication of jurisdiction- where the most difficulty lies. It followsthat a firm understanding of the varying approaches to answer thisquestion is an absolute prerequisite to any bilateral agreement preemp-tively allocating jurisdiction between European Community and UnitedStates fora.

In 1984, in Timberlane Lumber v. Bank of America, the United StatesCourt of Appeals sanctioned a seven-step balancing approach to de-termine whether to apply domestic antitrust laws in a private actionseeking damages from an alleged conspiracy instituted and conductedin Honduras.5 9 While ultimately declining to exercise jurisdiction, thedecision on review kept intact a seven-step weighing approach for-mulated in the earlier decision. 6° In weighing whether to exercise ju-risdiction, the Ninth Circuit Appellate Court considered: the degree ofconflict with foreign law or policy, the nationality or allegiance of theparties and the locations of principal place of business, the extent towhich enforcement can be expected to achieve compliance, the relativesignificance of effects on the United States as compared with thoseelsewhere, the extent of explicit purpose to harm or affect Americancommerce, the foreseeability of such effect, and finally, the relativeimportance to the violations charged of conduct within the UnitedStates as compared with conduct abroad.6"

Within the year, a conflicting decision eschewing this balancingapproach was handed down by another United States Court of Appeals,this time from the District of Columbia.6 2 In Laker Airways v. Sabena,Belgian World Airlines, a British airline operating in the United Stateswas allegedly forced into bankruptcy by antitrust violations by otherairlines, and sought remedy under U.S. antitrust laws. In a series ofrather complicated maneuvers, three months after Laker Airways filedthe antitrust action in the United States, several of the defendantssought and were granted an injunction by the High Court of Justiceof the United Kingdom to forbid Laker Airways from proceeding with

59. Timberlane Lumber Co. v. Bank of America, 749 F.2d 1378 (9th Cir.

1984) (Timberlane II) cert. den., 472 U.S. 1032 (1985).

60. Timberlane Lumber Co. v. Bank of America, 549 F.2d 597 (9th Cir. 1976)(Timberlane I).

61. Timberlane v. Bank of America, 749 F.2d 1378, 1383-1386 (9th Cir. 1984).62. Laker Airways Ltd. v. Sabena, Belgian World Airlines, 731 F.2d 909 (D.C.

Cir. 1984) [hereinafter Laker].

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its American antitrust claim against them. 63 Fearing that the remainingtwo defendants would seek similar relief, Laker Airways sought andwas granted injunctive relief from the U.S. District Court which barredthe remaining defendants from seeking British injunction to force Lakerto dismiss its suit against them. 64

Then, on May 20, 1983, the High Court of Justice held that theapplication of the American antitrust laws to companies carrying onbusiness in the United States was not contrary to British sovereignty, withthe disclaimer that in the event the English Secretary of State shoulddeclare that Britain's trading interests were negatively implicated, thatholding could change. 65 Such a determination was made, 66 and in thenext month the British Government invoked the British Protection ofTrading Interests Act, 67 requiring all persons conducting business inthe United Kingdom to "disobey all foreign orders and cease allcompliance with the foreign judicial or regulatory provisions designatedby the Secretary of State.' ' The Act sought to prevent United Kingdomcourts from cooperating with foreign tribunals' requests for documents,and forbade enforcement of treble damage awards or antitrust judgmentsas specified by the Secretary of State.

In deciding to proceed with the United States antitrust suit, theDistrict of Columbia Circuit acknowledged that sufficient contacts ex-isted within both the United States and England to support concurrentprescriptive jurisdiction. 69 The court noted that "the mere existence ofdual grounds of prescriptive jurisdiction does not oust either one ofthe regulating forums. Thus, each forum is ordinarily free to proceedto a judgment." 7 0 However, in examining both the motive of thedefendants in seeking injunctive relief from the British High Court,7"

63. Id. at 915.64. Id.65. Id. at 919, (emphasis added).66. Id. at 920.67. Protection of Trading Interests Act, 1980, ch. 11, Appendix of Record

Excerpts Submitted on Behalf of Appellants Sabena and KLM at Tab 5, cited in Id.at 918.

68. Id. at 920.69. Id. at 926.70. Id.71. Id."Appellants ...are not interested in concurrent proceedings in the courtsof the United Kingdom-they want only the abandonment or dismissal ofthe American action against them. . . [that they did not pursue a limitedinjunction that would have permitted the United States proceedings to

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and in reasoning that the result of granting jurisdiction to Englandwould be to render the plaintiff without remedy,72 the Court foundthat it could not decline jurisdiction without totally abdicating its re-sponsibility to protect businesses operating in the United States. Rec-ognizing the opposition of the British Government to the right of theUnited States to apply its antitrust laws to British air carriers operatingin the United States, the court held the antisuit injunction to benecessary to protect United States jurisdiction.73 In giving what it termedserious consideration to comity principles, the court held:

When the foreign act is inherently inconsistent with the policiesunderlying comity, domestic recognition could tend either tolegitimize the aberration or to encourage retaliation, under-cutting the realization of the goals served by comity. No nationis under an unremitting obligation to enforce foreign interestswhich are fundamentally prejudicial to those of the domesticforum. Thus, from the earliest times, authorities have rec-ognized that the obligation of comity expires when the strongpublic policies of the forum are vitiated by the foreign act.7"

While the court literally dismissed the balancing approach of Tim-berlane as inadequate as a basis for selecting one forum's prescriptivejurisdiction over that of another,75 it could be argued that the Lakeranalysis also involves an interest balancing approach, albeit of a differentcolor. Essentially, the Laker court employed an interest balancing ap-proach in juxtapositioning the intent behind the defendant's seekinginjunctive relieve from the British tribunal and the British motive insupporting it against the interest of the United States in enforcing its

continue] indicate[s] that they are only interested in interfering with theantitrust action, and not in adjudicating the existence of an unlawfulconspiracy under British law."

Id. at 930.72. Id."Appellants characterize the district court's injunction as an improperattempt to reserve to the district court's exclusive jurisdiction an actionthat should be allowed to proceed simultaneously in parallel forums. Ac-tually, the reverse is true. The English action was initiated for the purposeof reserving exclusive prescriptive jurisdiction to the English courts, eventhrough the English courts do not and can not pretend to offer the plaintiffshere the remedies afforded by the American antitrust laws."

Id.73. Id. at 934.74. Id. at 937.75. Id. at 948.

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antitrust laws. In finding the latter outweighed other considerations,including that of comity, the court's result rested on a weighing analysis. 6

Of particular importance to a discussion on the need for a bilateraljurisdiction agreement in antitrust cases are tribunals' reluctance todecide the relative merits of the antitrust laws of the United States andEngland. "We are in no position to adjudicate the relative importanceof antitrust regulation or nonregulation to the United States and theUnited Kingdom. . . the judiciary. . .must weight these issues in thelimited context of adversarial litigation. . . ."" This language supportsresolution of these disputes not in the judicial forum, but in the forumbest equipped to weigh foreign policy proposals. Both tribunals' re-luctance to formulate foreign policy with respect to antitrust matters,and their frustration in having to adjudicate in an area fraught withdiplomatic complexities lends much credence to the call for a bilateralagreement in this area. In short, by refraining from deciding whichnation's interests should prevail, the court declined to do by judicialfiat what arguably must be done by a bilateral treaty.

D. Conclusion

In visiting some of the existing jurisdictional disputes, it is clearthat while they are not voluminous to date, the frustration illustratedin Laker suggests that similar jurisdictional dilemmas may become moreprevalent in the future. While the United States has the benefit of over100 years of application under the Sherman Act, the EEC's competitionregulation dates back only to 1957 and the Treaty of Rome, prior towhich competition was regulated individually by the respective memberstates. Application of domestic antitrust laws has not been limited toacts occurring in the domestic territory of either the United States orthe EEC. As discussed, the textual provisions of the relevant statutesof both sides provide language which, if the other criteria are met, willallow for extraterritorial application of the law.

While principles of international comity dictate a weighing of factorsprior to extraterritorial application of laws, these factors are not alwaysdispositive of the question: with which nation should jurisdiction overthis case rest? That is because a sound and objective weighing can

76. But see Deborah K. Owen and John J. Parisi, International Mergers andJoint Ventures: A Federal Trade Commission Perspective, 8 FORDHAM CORPORATELAW INSTITUTE (B. Hawk, ed., 1991), supporting the reading of Laker as rejectingthe interest balancing analysis adopted by the Ninth Circuit in the Timberlane cases.

77. Laker, 731 F.2d at 949, 950.

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result in a decision that both have equal grounds for prescriptive andenforcement jurisdiction. Specifically, parties may reside and conductbusiness in both jurisdictions, and the importance to each of the re-spective authorities in challenging or leaving intact the activity may beequal. This anomaly rests equally with the classic "effects doctrine"of international law, under which a nation has jurisdiction to enforceits laws in response to activities causing substantial effects within itsterritories. Again, assuming measurability, economic effects of businessactions can have an impact in several national economies, thus elevatingall parties to equal status in putative disputes.

A classic discussion of why judicial resolution of antitrust juris-dictional disputes on principles of international law is inadequate wasprovided in Laker, where tacit support for discussions between theexecutive branches of the governments involved was evident. The courtson both sides expressed frustration at being faced with an issue thatclashes in the judicial setting due to a failure to act on the part of theexecutive: both were merely carrying out legislative and administrativedirectives of their respective countries, and both expressed perceivedinadequacies of this approach.

That jurisdictional issues must play a dominant role in bilateraltreaty negotiations is therefore evident. Very recently, Sir Leon Brittan,Vice President of the European Economic Community Commission,has called for such bilateral agreement between the United States andthe EEC. It is hoped that discussions pursuant to this proposal willprevent a recurrence of judicial frustration of Laker magnitude in thefuture. Granted, consideration of ex ante jurisdiction allocation in theantitrust area will be a delicate and difficult task absent the use of atangible set of circumstances such as is present in a judicial setting.Any attempt to determine-in advance of a dispute-which nation'slaws will prevail must mix the established international doctrines ofeffect and comity, and leaven them with reasonableness premised upona desire to promote economic health between the parties. Nonetheless,domestic economies depend upon reasonable certainty for their growth;before domestic businesses operating abroad can plan to accommodatecompetition regulations, they must know under whose jurisdiction theirconduct will fall. To that end, discussions of a bilateral agreement areimperative."'

78. For a perspective limiting these concerns due to overriding practical con-siderations, see Owens and Parisi, supra note 76, at 6. (Referring to foreign parties'willingness to accommodate the U.S. Federal Trade Commission in its investigationsof antitrust activity, through the use of a consent agreement, as a way to smooth entryinto the U.S. business arena).

1992]


III-SUBSTANTIVE VARIATIONS IN MERGER CONTROL REGULATIONS

Part II explored conflicting approaches to assertions of domesticjurisdiction to antitrust behavior conducted by foreign actors. Whilethe difficulty in judicial resolution of antitrust jurisdiction issues maylie, as suggested, in the reality that antitrust policy is customarily setby executive directives, an equally problematic area lies in the sub-stantive approach of the differing jurisdictions. Part III will be devotedto an exploration of the substantive considerations that support decisionson either side of the Atlantic to either challenge or leave intact potentiallymonopolistic plans. Discussion in this section is limited to the area ofmergers. Discussion of merger review in the United States is largelydrawn from the Department of Justice Merger Guidelines;7 9 discussionof activity in the European Economic Community is drawn from theEEC Regulation on the Control of Concentrations BetweenUndertakings. 80

A. Product and Market Definition in the United States

Although critical to any analysis of the possible effects of proposedor enacted mergers, there is little conformity on the identification ofdomestic and international geographic markets or suitable product al-ternatives. Thus little uniformity exists in predicting how internationalmarkets will react in response to mergers, since these predictions areordinarily based upon market and product considerations.

In establishing the groundwork fundamental to bilateral treatydiscussions in the area of antitrust, an understanding of substantivecriteria used by the respective authorities to measure the legality ofproposed activity is essential."' Recalling from Part II that the United

79. DEPARTMENT OF JUSTICE MERGER GUIDELINES, supra note 31, at 7-19.80. Council Regulation, supra note 46.81. For a discussion of United States Department of Justice antitrust analysis

of mergers having international dimensions, see generally, ANTITRUST ENFORCEMENT GUIDE-LINES FOR INTERNATIONAL OPERATIONS, in 6 THE DEPARTMENT OF JUSTICE MANUAL, supranote § 15, at 7-243. (Recognizing that some mergers present procompetitive efficiencies,

the Department outlines a four step analysis to identify potential anticompetitive harms.

The first step focuses on the markets in which the merged operations operate; step

two focuses on other markets in which the parties are actual or possible competitors;step three assesses whether anticompetitive effects of any vertical restraints may arisefrom the merger [even if parties to the merger are not competitors, vertical relationshipscan create horizontal problems- see infra note 891; and if steps one through threeuncover significant anticompetitive risks, step four allows the Department to considerany efficiencies which would result from the transaction.) Id. at 7-244.3.

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States Department of Justice enforces antitrust policy pursuant to theSherman Act and the Clayton Act, acquisitions and mergers are subjectto section 1 of the Sherman Act 82 and section 7 of the Clayton Act. 83

A quick glance at the language in these Acts reveals the latitude leftin determining whether activities fall into the proscriptions; virtuallyno guidance in determining violations is given in either Act. Accord-ingly, the Department of Justice's (the Department) Merger Guidelinesset forth merger enforcement policies.

Any review of a proposed merger requires an analysis of marketpower, which is a function of the firms' product market and geographicmarket. The Department employs these two concepts to assess theeconomic impact of a proposed merger to determine whether competitionwill be lessened as a result of the merger. To focus the analysis onthe companies involved in the review, the Department restricts itsanalysis to economically meaningful markets. The essential inquiry iswhether the merged firms could impose and sustain price increases inthose markets.84 Four factors influence whether price increases wouldbe tolerated by the market, and therefore must be assessed in mergerreviews: 1) consumers may switch to other products; 2) they may usethe same product produced by other firms in other areas; 3) producersof other products could switch existing facilities to the production ofthe product; or 4) producers could enter into the production of theproduct by modifying existing facilities or constructing new facilities.8 5

1. Product Market Definition

To assess potential effects on competition of proposed mergers,the Department first measures the market for each product (or service)

82. 15 U.S.C. § 1 (1982). Section 1 prohibits mergers comprising a "contract,combination. . ., or conspiracy in restraint of trade" among the several states of withforeign nations." Id.

83. 15 U.S.C. § 18, Pub. L. No. 98-443, 98 Stat. 1708 (1982). Section 7prohibits mergers if their effect "may be substantially to lessen competition, or to tendto create a monopoly." Id.

84. MERGEP GUIDELINES, supra note 15, at 7-31-32."Formally, a market is defined as a product or group of products and ageographic area in which it is sold such that a hypothetical, profit-maxi-mizing firm, not subject to price regulation, that was the only present andfuture seller of those products in that area would impose a 'small butsignificant and nontransitory' increase in price above prevailing or likely

future levels."Id. at 7-32.

85. Id. at 7-32.

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IND. INT'L & COMP. L. REv.

of the firms involved."6 They create as a tool for their an analysis ahypothetical firm which as the only present and future seller of thoseproducts could "profitably impose a small but significant and non-transitory" price increase . 7 The inquiry here is whether there aresufficient product substitutes to enable consumers to switch to otherproducts. If sufficient shifting occurs in the analysis, the Departmentadds to the product group the next best substitute for the mergingfirm's product, and goes through the same analysis again. This continuesuntil a group of products is identified for which the hypothetical mo-nopolist could impose the price increase. In general, prevailing marketprices are used in the analysis; the price increase applied is five percentand it is presumed to last one year.

For purposes of this discussion, it is important to note the evidenceemployed by the Department in these analyses. Fundamental to anunderstanding of how these measurements work is the concept of usinghistorical data as indicators of future activity. In using present marketprice, the Department acknowledges that changes in price may occurirrespective of the proposed merger. Namely, prices may change in anultimate reflection of changes in product or environmental regulations.The Department's analysis of the effects of price increases is inferential,and is based on several types of circumstantial evidence, includingpurchasing trends, historical analyses of pricing, comparisons of char-acteristics of the products, and evidence of sellers' perceptions regardingwhether the products are or are not substitutes. Finally, the Departmentincludes firms in the hypothetical market which could easily convertexisting productive and distributive facilities to produce and sell therelevant product within one year in response to the price increase.M8

2. Geographic Market Definition

A similar approach is employed to define the boundaries of thegeographic market which would be affected by the merger. First, theDepartment determines the geographic market (markets) in which that

86. Id.87. Id.88. Id. at 7-34-35. The manual notes that some firms could easily convert their

facilities from the production of one product to another, but that these same firms

may have difficulty in establishing distribution or marketing strategies in such a shorttime. These firms are not included in the market analysis. For a discussion of the

Department's methods in identifying foreign firms whose production capacity doessuggest the ability to convert to production of the product in question, see infra note107.

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firm sells; the geographic boundaries could be atomistic or as large asthe entire world.8 9 Again, the analysis seeks to identify the geographicarea such that the hypothetical firm, as the only present or futureproducer or seller of the product in that area, could profitably imposea "small but significant and nontransitory" 90 price increase. If thereare plenty of other firms located elsewhere which could provide therelevant product to the consumers at a similar price (building in thecost of transporting the goods into the area) the geographic area willbe expanded to include those firms. The analysis continues addingfirms from surrounding locations in this manner until the geographicarea in which the price increase could be imposed is obtained.

In United States v. Waste Management,9' the Second Circuit cited theMerger Guidelines in their reversal of a district court's decision thata merger of two commercial waste haulers violated section 7 of theClayton Act.92 While agreeing with the District Court's finding thatthe relevant geographic market was Dallas County excluding Fort Worthas part of the relevant geographic market, 93 the Second Circuit none-theless considered whether firms located outside Dallas County couldsuccessfully enter the Dallas County geographic market. 94

The Second Circuit acknowledged there would be increased costsof daily travel between Fort Worth and Dallas which would not bepresent for Dallas-based companies, but found "no barrier to FortWorth haulers' acquiring garage facilities in Dallas" which would permitthe Fort Worth companies to keep some of their trucks stationed inDallas .9

What Waste Management indicates with respect to the geographicmarket definition is that the ease of entry analysis will not be confinedto those firms already or potentially operating in the court-definedgeographic market. Indeed, the relative ease of entry into the trashcollection business was sufficient to overcome the district court's findingof a post-merger share of 48.8% of the market, which is sufficient toestablish prima facie illegality under Section 7 of the Clayton Act. 96

Invoking the Merger Guidelines, (Guidelines) the Second Circuit held

89. Id. at 7-36.90. Id.

91. United States v. Waste Management, 743 F.2d 976 (2d Cir. 1984).

92. Id. at 982.93. Id. at 980.94. Id. at 983 (emphasis added).95. Id.96. Id. at 977.

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that ease of entry is so relevant to determining how a merger will affectcompetition that it "may override all other factors. '

Again, the quality of the evidence used in the geographic marketdefinition process is critical to an accurate assessment of the merger'seffects. The Department, in using the "small but significant and non-transitory" price increase as an objective guide considers historicalevidence of: shipment patterns of considered firms and their competitors;evidence that consumers have shifted their purchases to sellers at dif-ferent locations; differences or similarities in the price movements ofthe relevant product which are not caused by causative factors in thediffering areas; transportation costs; local distribution costs; and excesscapacity of those firms outside the merging firms' location.9" Foreigncompetitors are included in the geographic market, if relevant, andmarket shares are assigned to them in the same manner they are assignedto domestic firms (e.g., dollar sales, shipments to the relevant market,physical production capacity, reserves, or dollar production). 99

3. Market Shares and Market Concentration

The primary index of a firm's market power is the statisticalevidence reflecting its shares of the respective market, computed byusing the factors outlined above. Concentration of the market is thelead indicator of market power; controlling for other factors, the largerthe percentage of total product supply controlled by one firm, the morereadily the firm can restrict output in order to support a price increasein that product.'00

After defining the appropriate product and geographic market, theGuidelines provide a three-tiered threshold by which to assess prelim-inarily the competitive effects of the proposed horizontal merger. Forthese purposes, mergers of firms in the same product and geographicmarket are considered horizontal. 10 1 The three level approach uses the

97. Id. at 982.98. See supra note 15, at 7-38.99. Id. at 7-38. It is noted that while quotas may prohibit the increase of

imports of the relevant product, those quotas may be offset by production in countriesnot subject to the quota. Thus quotas do not per se exclude any country from thegeographic definition, and the effects of quotas are considered separately in Section3.23 of the manual. Id. at 7-44.

100. Id.101. Id. at 7-40. Vertical mergers involve firms at different levels of the production

scheme; conglomerate mergers involve everything else. Although by definition non-horizontal mergers will not change the HHI concentration level, they are still subjectto challenge because the merger of a firm already in the market with a firm that couldenter the market after the merger may affect competition as well.

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Herfindahl-Hirschman Index (HHI) to compute market concentra-tion.10 2 Simply put, the HHI sums the squares of the individual marketshares of all the firms identified as part of the market (including inthe computations the proposed merger). Thus, a market of four firmswith market shares of 40 percent, 30 percent, 20 percent, and 10percent would yield an HHI of 3,000. (402 +302 +202 + 102 =3,000.)The Guidelines provide that the thresholds are characterized as un-concentrated when the HHI is below 1,000, moderately concentratedwhen the HHI is between 1,000 and 1,800, and highly concentratedwhen the HHI is above 1,800.103 Additionally, the Department evaluatesthe increase in concentration that would result from the merger. Simply,the market shares of the merging firms are multiplied, then doubled.' 0 4

Armed with these two calculations, the Department in generalfollows these standards: For post-merger HHI below 1000, the De-partment will usually not challenge the merger. For post-merger HHIbetween 1,000 and 1,800 the Department will not likely challenge themerger, unless the increase in HHI is greater than 100. '05 Finally, forpost-merger HHI over 1,800 and producing an increase of over 50points, the Department will likely challenge the merger.10 6

However, in re Echlin Manufacturing Co., a case decided after pub-lication of the Merger Guidelines, the Federal Trade Commission found

102. Id.103. Id. at 7-41. Note in the hypothetical that the market is highly concentrated.

This is presented for simple illustrative purposes only; a realistic merger analysis wouldhave many more firms, ascribing a lower market share to each. Thus, the first blushimpression that under this analysis virtually all mergers would be suspect is illusory,and made so only by the simple four firm illustration.

104. Id. The guidelines provide this example: The merging firms have sharesof 5 percent and 10 percent; the HHI is increased by 100 from the merger. (5 X 10X 2 = 100). It explains: "In calculating the HHI before the merger, the marketshares of the merging firms are squared individually: (a)2 + (b)2. After the merger,the sum of those shares would be squared: (a + b)2 , which equals a2 + 2ab + b2 .The increase in the HHI therefore is represented by 2ab." Id.

105. Id. .7-50. This challenge will be made only after taking into account variousother factors that affect the significance of market shares and concentration, likechanging market conditions, financial conditions of firms in that market, and domesticor foreign firms' ability to enter or increase their presence in the market. Also, andimportantly, the Department recognizes that some mergers in this rating will enhanceefficiencies, thus, the parties' showing by clear and convincing evidence that a mergerwill achieve significant net efficiency may ameliorate this rating and reduce the likelihood

of challenge. Id.106. Id. The same factors outlined in supra note 105 are taken into consideration

19921


no violation even where these thresholds were exceeded by the merger. 1,7

In Echlin, the top six firms in the industry accounted for 95% of sales,for a postmerger HHI of around 3,000 and a concentration increaseas a result of the merger of around 750 points.1 0 8 In Echlin, the com-bination of a high HHI and high concentration increase was outweighedby considerations of ease of entry, with the court taking a very narrowview of barriers to entry.1°9 While Echlin has been noted as reflectingthe Federal Trade Commission's enforcement policy under the MergerGuidelines, '10 how the ease of entry analysis will be viewed against theHHI thresholds in different fact situations remains to be seen.

4. Cross-elasticity of Product and Demand

As noted, the ability of consumers to switch products, and theability of other players to enter the market in response to a priceincrease, is the underlying economic construct of these analyses. Theimportance of a high HHI may be totally obviated if other firms canswitch their production and distribution plans quickly enough to ac-commodate the customers that would otherwise have been harmed bya price increase.

The potential market power possessed by a group of producersfunctioning as a cartel is summarized by the elasticity ofdemand they face. Typically, the elasticity of demand facinga potential cartel increases as members of the group are placedoutside the cartel. Thus, in specifying the smallest profitablecartel, the Guidelines are implicitly specifying a critical valuefor the elasticity of demand facing the cartel. Since economictheory predicts that the viability of a cartel is negativelycorrelated with the numbers of its members, focusing on thesmallest profitable cartel will usually be dispositive on thelikelihood of anti-competitive effects."'

107. Robert Pitofsky, New Definitions of Relevant Market and the Assault on Antitrust,90 COLUM. L. REV. 1805, 1825 (1990) citing Re Echlin Manufacturing Co., 105 F.T.C.410 (1985).

108. For a discussion of HHI calculations, See supra note 104 and accompanyingtext.

109. Pitofsky, supra note 107. The court in its formulation listed only governmentlicenses and patents as barriers to entry. Id.

110. Id. at 1825.111. David Scheffman and Pablo Spiller, Geographic Market Definition Under the

U.S. Department of Justice Merger Guidelines, 30 J.L. & ECON. 123, 126 (1987).

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However, no single source exists to identify potential foreign sourcesof competition- either from existing firms' abilities to alter their facilities,or from new firms' potential to enter the market. Limitations on dataavailable concerning foreign firms' capacity to devote new, revised, orincreased production outputs to export to the United States make theseanalyses indefinite, and, perhaps unavoidably, quantitatively imprecise.Thus, qualitative assumptions about potential foreign responses mustbe made. In general, the Department "attempts to identify those foreignfirms whose output may be relevant to the analysis, by talking to theprofessionals involved in the proposed merger and consulting relevantTrade Associations."

112

B. Merger Control in the European Economic Community

The EEC Merger Control Regulation (Regulation)' which becameeffective in September, 1990, was implemented to satisfy the questionsof conflicting applications and voids of articles 85 and 86 of the Treatyof Rome noted in part II. 1

4 Significantly, article 2 of the Regulationprovides for a one-step appraisal, whereas under article 85, two inquirieswere made. The inquiry sought first to establish prohibited activityunder 85(1), then to exempt the prohibition in circumstances wherethe activity improved the production or distribution of goods or technicalprogress under 85(3)."'

1. Dominant Position within the Relevant Geographic Area

The preamble to the regulation suggests that the regulation willbe applied "according to the geographical area of activity of the un-dertakings concerned and be limited by quantitative thresholds in orderto cover those concentrations which have a Community dimen-sion. .... "1116 Article 2(3) provides that a merger will be declared in-compatible with the common market if:

112. Telephone Interview with Charles Stark, Chief of the Foreign CommerceSection, Antitrust Division, United States Department of Justice (October 18, 1991).According to Mr. Stark, the Antitrust Division is confident that persons working inthe firm under evaluation can be readily relied upon to identify actual and potential,domestic and foreign competitors. Emphasis added.

113. MERGER GUIDELINES, supra note 15. The regulation provides much of thebasis for discussion in this section.

114. See supra note 39 for the full text of Art. 85; supra note 43 for the full textof art. 86.

115. Treaty of Rome, art. 85, art. 86, supra note 9.116. Council Regulation, supra note 46.

1992]


the merger creates or strengthens a dominant position with theresult that effective competition would be significantly impeded in thecommon market (or in a substantial part of it).

Within the geographic market boundaries established, a concen-tration meeting the certain threshold criteria will be subject to reviewby the Commission, and will be declared incompatible with the commonmarket if it creates or strengthens a dominant position resulting in asignificant impediment to competition. Nowhere in the Treaty or Reg-ulation is dominance defined. As Sir Leon Brittan, Vice President ofthe Commission, recently expounded regarding the amorphous phrase"dominant position":

Let there be no doubt: the fundamental analysis to be carriedout by the Commission is whether the merger impedes com-petition. A dominant position analysis, [pursuant to article861 will be necessary in all cases in order to see whether themerged company has a sufficient degree of market power tostand in the way of competition by acting without the restraintswhich competition imposes in normal circumstances. . . ourconcern will be whether the merged company could raiseprices, discriminate unfairly or restrict output with impunityor in a way which would not be possible in normal competitiveconditions. 117

2. Allocation of Jurisdiction according to Turnover

The quantitative thresholds alluded to in the preamble essentiallyprovide a division of jurisdiction between Member States and theCommission of the European Communities, reserving to the latterjurisdiction over concentrations having a Community dimension, de-fined where: 1) the combined aggregate worldwide turnover of all theundertakings concerned totals more than 5,000 million ECU;18' and 2)the aggregate Community-wide turnover of each of at least two of theundertakings involved is more than 250 million ECU, unless each ofthe undertakings achieves more than two-thirds of its aggregate Com-

117. Sir Leon Brittan, Vice President of the Commission of the EuropeanCommunities, The Law and Policy of Merger Control in the EEC, Address Beforethe Bar European Group, (May 3, 1990) in 15 Eur. L. Rev. 351, 352. Sir Brittancommented, "In my view, we are at the beginning of a new legal development andthe Council did not wish to create a pure dominant position test." Id.

118. The E.C.U. was valued at ECU = $1.31 in September, 1990. Cregor,supra note 4, at 8.

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munity-wide turnover within "one and the same Member State." 1 9

Concentrations in this context refer to mergers and acquisitions of jointcontrol. 2o

The Commission, in determining whether the proposed concen-tration is compatible with the common market preservation goals ar-ticulated in article 2 of the Treaty of Rome,' will consider the structureand position of the markets concerned, including that of actual andpotential competition both within and without the Community, theavailability of product (or service) alternatives,' 2 and historical markettrends. Calculations of turnover are conducted within a geographicalreference market, defined as an area

[I]n which the undertakings concerned are involved in thesupply and demand of products or services, in which theconditions of competition are sufficiently homogeneous andwhich can be distinguished from neighboring areas because,in particular, conditions of competition are appreciably dif-ferent in those areas. This assessment should take account inparticular of the nature and characteristics of the products orservices concerned, of the existence of entry barriers of of(sic) consumer preferences, of appreciable differences of theundertakings' market shares between the area concerned andneighboring areas or of substantial price differences. 123

Data supporting the turnover calculations are amounts derived bythe involved firms' sales and services from the preceding financial year.The amounts are those after deduction of sales rebates and of taxesdirectly related to the turnover.'2 4

119. Council Regulation, supra note 46, art. I. Pursuant to 3, however, theseceilings will be reviewed and possibly lowered by the end of 1993.

120. Id. art. III.121. Treaty of Rome, supra note 9.122. Included in the availability analysis will be a consideration of the alternatives'

access to the markets, which necessarily invokes consideration of barriers to entry.Council Regulation, supra note 46, art. II.

123. Id. art. IX, 7.124. Id. art. V. Included in the calculations are the respective turnovers of (a)

the undertaking concerned; (b) those undertakings in which the undertaking concerned,directly or indirectly owns more than half the assets, has the power of over half thevoting rights, has power of appointment of over half the members of the controllingboard, or has the right to manage the undertakings' affairs. However, sales and servicesas provided between these undertakings are not included in the turnover calculations.

1992]


3. Practical Application of the EEC Merger Criteria

A practical assessment of the Regulation's effects is made difficultdue to its relative newness. However, the Regulation cannot abrogatethe Treaty of Rome, as it was specifically promulgated pursuant to it,as evidenced by the recitals found at the beginning of the text. Giventhat the Treaty is the Constitution of the EC and thereby the preeminentauthority,1 25 an assessment of how articles 85 and 86 have been con-structed by the courts in the past is helpful to a projection of how theywill be handled under the new Regulation.

The Regulation's relationship to articles 85 and 86 of the Treaty,and its effect on national authorities' sovereignty to handle internalmergers is a developing area. The three-tiered threshold recognizesimplicitly that some mergers, the effects of which are confined to onemember state, are better left to that state to handle; concomitantly,mergers affecting several member states are more suitably dealt withby a supranational institution. 26 Recall that article 85 prohibits anyagreement among undertakings that significantly restricts competitionwithin the EEC, but provides an exception, while article 86 prohibitsthe abuse of a dominant position but provides for no exemptions.127

Indeed, it has been held 28 that an "infringement of Article 85 canprecede and thereby facilitate infringement of Article 86. 129

In addition, the Regulation expressly provides that a previouslypassed regulation 3 ° regarding concentrations will not apply to concen-trations as defined in article 3 of the new Regulation, echoing the 1986Ministere Public v. Asjes decision.' 3' Ministere Public held that nationalcourts had no authority to declare void an agreement or concertedpractice under article 85, paragraph I of the Treaty, as long as article87's requirement of implementing rules for article 85 had not beenadopted. 132 The upshot of this provision is to make third party challenges

125. Dassesse, supra note 37, at 380.126. Brittan, supra note 117.127. See supra notes 39 and 43, and accompanying text.128. Italian Flat Glass, 4 C.M.L.R. 535 (1990). (Censuring parties' formation

of a cartel and preventing customers from bargaining on prices.)129. RAYBOULD, supra note 8, at 190.130. Dassesse, supra note 37, at 380, citing Council Regulation No. 17/62, O.J.

Eng. Spec. Ed. 1959-62, at 87.131. Id. at 381, citing Ministere Public v. Asjes and Others (Nouvelles Frontieres)

E. Comm. Ct. J. Rep. 1425 (1986).132. Id.

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pursuant to article 85, of concentrations authorized by the nationalcontrol authorities, impossible.' 3

However, article 86, which requires no implementing authority, 134

may still be applicable even though parties are exempt under article85, as evidenced by a recent appeal of a Commission decision in TetraPak.135 In that case, appellants' proposed acquisition of an exclusivelicense to filling equipment for liquid food products, through purchaseof a company holding the license, was held to constitute an infringementof article 86, even though an exemption pursuant to article 85(3) hadbeen granted. Although Tetra Pak had abandoned all claims to theexclusivity of the license after the Commission objected, the Commissionissued the decision afterward to clarify its position. On appeal, appellantsurged the Court of First Instance to hold that article 86 could not beapplied to conduct which had been exempted pursuant to article 85.Appellant relied in their argument on an earlier decision in Europem-ballage Corporation and Continental Can, 136 which held that articles 85 and86 could not be interpreted in a contradicting way, since they bothserve to achieve the same goal. The Continental Can decision reasoned:

Articles 85 and 86 seek to achieve the same aim on differentlevels, viz. the maintenance of effective competition withinthe Common Market. The restraint of competition which isprohibited if it is the result of behavior falling under Article85, cannot become permissible by the fact that such behaviorsucceeds under the influence of a dominant undertaking andresults in the merger of the undertakings concerned... Inany case Articles 85 and 86 cannot be interpreted in such away that they contradict each other, because they serve toachieve the same aim.137

In addition, the appellants argued that while the court in Hoffimann-LaRoche and Company v. E. C. Commission3 8 held that the operation ofarticle 86 was not precluded if agreements fell within the ambit of

133. Dassesse, supra note 37, at 381.134. Id. at 382.135. Id. citing Case T-51/89, Tetra Pak Rausing SA v. E.C. Commission, 4

C.M.L.R. 334 (1990) [hereinafter Tetra Pak].136. Tetra Pak at 345 citing Case 6/72, Europemballage Corp. and Continental

Can Co. v. E.C. Comm'n, E.C.R. 215, C.M.L.R. 199, 25 (1973).137. Id.138. Tetra Pak at 342 citing Case 85/76, Hoffman-La Roche and Co. Ag. v.

E.C. Comm'n, 13 E.C.R. 461, 3 C.M.L.R. 211 (1979).

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article 85, the Hoffman court concomitantly suggested that the conductmight be saved by the exemption proviso of article 85(3). 139

The Tetra Pak court was not persuaded, and invoked Article 3(f)of the Treaty of Rome, holding that the common aim of both provisions-the institution of a system to ensure undistorted competition in theCommon Market must prevail. 14° Accordingly, the court held that thetwo provisions had to be interpreted pursuant to that objective, andthat it would be sufficient for that purpose for only one provision tobe applied.

Extraterritorial application of the regulation is textually implicit aswell in the aggregate turnover criteria. Recall that concentrations willhave "community dimensions," thus engaging the jurisdiction of theCommission, where the aggregate worldwide turnover amount is morethan 5,000 million ECU and the Community-wide turnover is morethan 250 million ECU.'4 ' This language does not limit the applicationto mergers taking effect within the EEC territory; rather, EEC juris-diction will be engaged if the net sales (turnover) are sufficiently highon a global and community scale. "By this test, the Communityapparently claims jurisdiction over operations which have significanteffects in the Community: any concentration between two undertakingssituated outside the Community which meet the ECU five billion testand which have ECU 250 million turnover in the Community will...require notification. '142

Indeed, in 1988 in Alstrom v. Commission (Wood Pulp), 14 it wasmade clear that concentrations located entirely outside the territory ofthe EEC can have an EEC dimension and thus invoke the jurisdictionof the Community. 144 While it is clear that the Regulation is concernedonly with effective competition within the Community, 14 it is equallyclear that competition may be affected by activities conducted entirely

139. Id.140. Tetra Pak at 445.141. See supra note 113 and accompanying text for relative U.S. valuation.142. Christopher Jones, The Scope of Application of the Merger Regulation, INTER-

NATIONAL MERGERS AND JOINT VENTURES, FORDHAM CORP. L. INST. 385, 387. (B.Hawk, ed., 1990).

143. Alstrom v. Commission, E. Comm. Ct. J. Rep. 5193, 1985 O.J. (L 85/1).

144. Id.145. Bernd Langeheine, Substantive Review Under the EEC Merger Regulation, IN-

TERNATIONAL MERGERS AND JOINT VENTURES, FORDHAM CORP. L. INST., 481, 493. (B.Hawk, ed., 1990).

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outside of the EEC, where the threshold criteria and abuse of dominantposition test are met.

C. Comparative Analysis

The willingness of courts both in the United States and the EEC

to assert jurisdiction to activity occurring outside the boundaries oftheir domestic territories makes imperative an understanding of howthe substantive review criteria employed in each of the regulationsconcur and diverge.

The general tenor of both the EEC Merger Regulation (regulation)and the U.S. Merger Guidelines (guidelines) are the same: consumersare best protected when producers vying for their dollars have to compete

for them. Both instruments attempt to gauge the merger's future effecton the domestic market by evaluating underlying, and largely historic,economic indicators. Thus, in both approaches the accuracy of pred-ictions of future market reactions depends on the accuracy of the databuilt into the economic formulae as well as the validity of the models'assumption: that past activity is an accurate indicator of future behavior.Unfortunately for this discussion, nothing in the literature suggests thatmerger control decisions (whether to challenge or leave intact) areroutinely inserted back into the formulae, after sufficient passage of

time, to check the accuracy of the assumptions or the model supportingthe decision. Nonetheless, underlying premises of the two models are,at least in concept, in accord.

Likewise, the data supporting the analyses are similar. The MergerGuidelines instruct that specific sales, import-export trends, markettrends, and historical pricing trends in the respective industry will beevaluated to infer likely competitive effects of the merger. The MergerRegulations also specify that the sales volumes, pricing trends, import-export figures, and historical pricing indices will be taken into accountin assessing the impact of the merger. Both attempt to take into accountthe ability of firms not then competing in the relevant market to enterthe market, either through adjustments to then extant production fa-cilities or through the creation of new production facilities.

The numeric thresholds employed in each regulation are, however,different both in the mathematical relationships reflected and in thepurpose behind the exercise. Regarding the relationships reflected, un-der the U.S. guidelines, the Hershman-Hinderfahl Index reflects totalmarket concentration, taking into account all those products which aresimilar enough to function as product substitutes in the event of a priceincrease, and limiting the inquiry to the geographic region deemedmost reflective of the true market, be it a portion of a city or the

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entire world. The index is essentially a test of market concentration.Both the existing concentration levels and the increase in the concen-tration levels resulting from the merger are employed in the analysis,which is supported by the proposition that the more highly concentratedthe market already is, and the more the merger increases that con-centration level, the more readily a hypothetical firm could manipulatethe market and raise prices.

In contrast, the numerical threshold employed by the EEC MergerRegulations takes no account of shares of market presented by theparties to the merger. Rather, the turnover criteria provided in theregulation take an overall measurement of sales or services providedin the preceding year by the firms in question, again after taking stepsto insure that those companies competing in the market are accountedfor in the analysis. Here the assumption is largely parallel to the U.S.counterpart: the larger the firms' shares in the market under evaluation,the more ability those firms will have to exercise their market powerand raise prices at the expense of the consumer. However, the regulationis based on an outright measurement of the market activity withoutregard to concentration levels. A finding that the firms involved pro-duced the requisite turnover the preceding year will invoke the juris-diction of the Commission, regardless of the degree to which that marketis concentrated. So, the measurements employed by the two jurisdictionsvary in this way: the U.S. index reflects a measurement of marketconcentration, while the EEC thresholds reflect a quantitative meas-urement of market activity.

The purposes for which the respective threshold levels are usedare fundamentally different as well. In the United States, the HHI isused primarily as an indicator, after weighing other factors regardingwhether the merger is likely substantially to lessen competition, of theprobability that the merger will be challenged. In contrast, the turnoverthresholds provided in the EEC's guidelines were conceived as a wayto allocate merger regulation jurisdiction between the authorities of themember states and the EEC Commission. Simply stated, a low turnoveror a community-wide turnover which is confined primarily to theboundaries of a single member state will be regulated by that memberstate.

Perhaps the most substantive comparison is that of the conceptused to express the likelihood that the merger will have undesirableeffects on competition. In the United States, the HHI and all the otherconsiderations discussed are tools of inquiry to answer this question:Will this merger threaten competition? Inherent in that question is thesubquestion, "could a 'monopolist' profitably impose a small but sig-

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nificant and nontransitory price increase?" If the answer is yes andthe requisite HHI level is met, the merger is likely to be challenged.In the EEC, the turnover thresholds and the other considerations takeninto account in the merger analysis are employed to answer: Will thismerger impede competition? The subquestion here is whether the merg-ing firms hold a sufficiently dominant position in the market that theycould engage in restrictive behavior. Fundamental to both inquiries isan assessment of whether enough market power is present to enablethe firm to exploit consumers; the semantic differences notwithstanding,the concepts underlying the substantive goals are the same.

D. Conclusion

Because international mergers are common and likely to becomemore so, an understanding of where the two approaches agree anddiverge is important not only to business operating in the internationalsphere but to negotiators embarking on a treaty that could dramaticallychange the way international mergers are conducted. While applicationof both regulations involves complexities and a Herculean assessmentof what could happen given a hypothetical merger, the United States'guidelines are perhaps more sophisticated. This may be attributed tothe relative maturity of the U.S. antitrust system, as well as to afunction of the EEC Regulation that is entirely missing from the U.S.Guidelines: a division of jurisdiction over mergers. The three-tieredturnover threshold of the EEC's regulation represents not a likelihoodof challenge of the merger, as provided in the U.S. HHI, but anindication of which authority-that of the member state or that of theEuropean Commission-will preside over any challenge to the merger.

Even though there are quantitative differences between the twoapproaches, the spirit is the same: to apprehend those mergers which,due to significant market power presented by the merger, may be ableto exert enough influence on the market to impede free competition.Given that any bilateral agreement between the EEC and the UnitedStates is not likely to succeed if it attempts to unravel what is on bothsides the culmination of years of internal debate, it behooves conventionnegotiators to come to the table well versed in the nuances reflectedin merger policies of both sides.

IV. DISCOVERY PROBLEMS IN INTERNATIONAL ANTITRUST

.ENFORCEMENT

As alluded to in Part III, collecting specific information regardinginternal production capabilities and marketing strategies of companies

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is preliminary homework to an investigation of a proposed mergerinvolving those companies or their competitors. However, in an inter-national context, companies located abroad are sometimes reluctant tocomply with discovery information requests of foreign origin. Thissection will highlight some of the problems existing in internationalmerger control with respect to obtaining information necessary to con-duct a merger analysis, and will examine the need for an agreementin this area between the United States and the European Community.

Foreign discovery conducted by the United States pursuant toantitrust statutes, whether through the government or private parties,has caused conflicts for some time.1 1

6 Specifically, several foreign gov-ernments have invoked commercial secrecy laws or adopted blockingstatutes in response to American antitrust discovery. These statutes barforeign discovery by either controlling or prohibiting companies locatedwithin their territory from complying with information requests offoreign enforcement authorities or courts. In 1980 France enacted astatute imposing criminal liability, subject to an exception providedunder international treaties, on any foreign national seeking discoveryin connection with foreign judicial or administrative proceedings; 147 theUnited Kingdom enacted the Protection of Trading Interest Act in1980;14 and Switzerland specifically forbids the transmission of orattempt to obtain a manufacturing or business secret in order to makeit available to a foreign private or official body, to name a few suchstatutes. 149

Because some foreign governments view subpoenas as an intrusionand, worse, an infringement of their sovereignty, the Bureau of Com-petition of the Federal Trade Commission strives to seek only thatinformation which cannot be obtained domestically. Voluntary coop-eration is the preferred avenue for obtaining information and evidencelocated abroad. However, "[the Bureau's] experience has not beentrouble-free. Foreign discovery has caused delays and occasionally com-plicated investigations and adjudicative procedures. . . subpeonas fortestimony of foreign nationals or for documents located abroad continue,on occasion, to generate strong objections, and have resulted in motionsto quash." 150 Those motions to quash contest the Commission's exercise

146. Hearings, supra note 1, at 8 (statement of Kevin J. Arquit, Director, Bureauof Competition, Federal Trade Commission).

147. Id. at 14, n. 6, 7, 8.148. Id. at 15, n. 7.149. See fn. 148, n.8.150. Id.

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of personal jurisdiction and its method of service of process. While onetool at the Commission's disposal is to issue subpeonas to the foreigncorporation and serve process on the firm's American subsidiary, these

avenues are time-consuming and are said to highlight the Commission's

difficulty in effecting extraterritorial service directly on foreign firms

and foreign nationals.15"' In sum, the appropriate procedure for obtaining

foreign discovery in countries with commercial secrecy laws is not yet

certain.

A. Organization for Economic Cooperation and Development

The U.S. antitrust enforcement agencies have entered into agree-

ments with foreign authorities in an effort to ameliorate some of these

discovery problems. These voluntary bilateral and multilateral agree-

ments, whose terms cover discovery procedures, provide for prior no-

tification, consultation, and cooperation in antitrust enforcement actions

which could affect foreign interests. No country which is a party to

such an agreement has invoked a blocking statute since entering into

the agreement. 15 The multilateral agreements have been in existence

for some time, having first been issued in 1967, and revised in 1973,and 1979."'1 The agreements are currently under the Organization for

Economic Cooperation and Development (OECD), adopted by the

Council of the OECD on May 21, 1986.114 The current OECD agree-

ment specifies that competition agencies notify foreign party states, ifat all possible, in advance of taking any action which could affectinterests of those states. The latest version also includes an appendix

containing guiding principles on restrictive business practices whichaffect international trade, providing for notifications, exchanges of in-

formation, and consultation recommendations.' 55 Also included are

guidelines for conciliation between states who are unable to agree on

a particular matter, and the provision of the use of the Committee on

Competition Law and Policy. 156

151. Id. at 18.152. Id. at 16.

153. Edward F. Glynn, Jr., International Agreements to Allocate Jurisdiction Over

Mergers, INTERNATIONAL MERGERS AND JOINT VENTURES, FORDHAM CORP. L. INST 35,

38 (B. Hawk, ed., 1990).154. Id.155. Id. at 38.

156. Id. To date, there is no public record of any members having taken advantage

of the office of the Committee to settle disputes. Id. at 39.

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The OECD agreement, multilateral in nature, is different fromexisting bilateral agreements. Currently, the United States is party toonly one bilateral agreement with a European Community state-Germany' 5 7-while both the United States and the EEC are parties tothe 1986 OECD Recommendation. What is unclear, however, is howsuch bilateral agreements of the future will be affected by the Treatyof Rome and the Merger Regulation discussed herein. Given the thres-holds providing exclusive jurisdiction of some mergers with the Eur-opean Commission rather than the enforcement agencies of memberstates, it is likely that notification requirements under existing bilateralagreements will cede to a future agreement between the United Statesand the EEC. This is necessarily so under the Merger Regulation,because if member states' jurisdiction to review mergers is vested withthe Commission after a certain monetary threshold is met, it followsthat procedures pursuant to the merger review will vest with the Com-mission as well. The extent to which the Commission will proceed tocomply with information agreements entered into by individual memberstates and nonmember states is at present unknown.

In addition, the existing agreements provide for consultation andnotification under a "quasi-adversarial" scheme. 158 When one partywho is in charge of investigating or prosecuting antitrust breachessubmits a notification, it will typically be submitted not to that country'santitrust enforcement agency but to its commercial or foreign affairsministry. That is because the "protective interests" in the nation'sown commercial, economic or legal interests generally fall under adifferent organ than that country's antitrust enforcement agency. Forthis reason, the EEC itself rarely if ever receives the notification froman investigating OECD member. Rather, because these protective in-terests rest primarily with the national member states of the EEC, thecommercial ministry of the country where the involved company islocated receives the notice. "There is, in short, no 'protective interest,'at least under existing rules, that would trigger an obligation to notifyby the United States. The notification of proposed investigation orenforcement action goes not to the Community but to the nationalauthority." "9

157. Id. at 37, citing Bilateral Agreement with the Federal Republic of Germany,reprinted in 4 Trade Reg. Rep. (CCH) 13,501.

158. Id. at 42.159. Id. at 45.

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B. Hart-Scott-Rodino

As mentioned in Part II, the Hart-Scott-Rodino (HSR) Act 160

provides assistance in merger and acquisition discovery procedures.Pursuant to HSR, parties to mergers amounting to certain dollar levelsare required to give notice in advance to the Federal Trade Commission,and to wait a specified period before proceeding with the merger. Givenforeign firms' desire to conduct business in the United States, theircooperation with this procedure has been good. As noted before aSenate hearing on the matter, "[i]n general, foreign governments per-ceive the HSR filing requirements as a legitimate prerequisite to anyforeign firms wishing to make an acquisition affecting the U.S. market.Because parties cannot complete their deal without submission of theappropriate material, they have strong incentives to comply with re-quests for information."'' However, difficulties in obtaining all thenecessary information pursuant to the merger analysis persist due toforeign discovery problems encountered when seeking to complete doc-uments supplied domestically with sources located abroad. 162

A larger problem in HSR discovery, alluded to in Part III, is thatof obtaining information from third parties to the merger. Recall thediscussion of market and production elasticity, and the importance ofprojecting not only how consumers would respond to a price increase,but how other firms would respond. Some firms which are totally outof the computations of market share and competition might find itprofitable to either alter or switch production facilities entirely in orderto enter the market following such a price increase. While third partiesare routinely surveyed for information about market shares and easeof entry, 163 these firms usually have an interest adverse to the acquisition,and so have no incentive to help the merger be accomplished quickly.As explained, "[f]oreign competitors may view as overly intrusivediscovery requests for sales and production information, including futureplans; such data is often needed in merger investigations to define therelevant market in which to predict competitive effects.' 1 64

160. Hart-Scott-Rodino Act of 1975, 15 U.S.C. 5 18(a), Pub. L. No. 101-73,103 Stat. 529 (1989).

161. Arquit, supra note 146, at 19.162. Id. at 20. "However, as with the substantive response, it is difficult to

prove a negative: that relevant documents were omitted from the submission." Id. n.

13.163. Id. at 21.164. Id. In these cases, the Commission resorts to subpoena enforcement pro-

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As a final note, it may help in the analysis to understand someof the practical requirements involved in complying with merger en-forcement regulations in both the United States and the EEC. First,both jurisdictions require that certain plans to merge be made knownto the reviewing authority before the merger takes place. In the EEC,a merger with a Community dimension must be notified not morethan one week after the conclusion of the agreement, the announcementof the public bid, or the acquisition of a controlling interest, whicheveris earlier. 165 In the United States, a thirty-day waiting period existsbefore the acquisition can take place. The United States provides fortime extensions; the EEC does not. Both entities require that a standardform be used in the pre-notification, and the volume of informationrequired on the forms makes it prudent to start collecting the necessarydata well in advance of the deadline. 166

With respect to confidentiality, in the United States, pre-mergernotification filings may not be made public, unless relevant to admin-istrative or judicial actions. Disclosure can also be made to Congress. 67

In the EEC, professional secrecy rules dictate that information receivedcan only be used for purposes related to the request, investigation, orhearing. The Commission has to provide copies of all notifications toauthorities of the member states, and must publish the fact of notification(where the merger falls under the scope of the Regulation). Includedin that publication are the names of .the parties, nature of the merger,and the economic sector involved. However, the publication must takeinto account the legitimate professional secrecy interests of the under-takings involved.' 68

C. Information Agreements in the Competition Area: Possible Approaches

An understanding of some of the problems encountered in antitrustforeign discovery efforts, and an overview of what pre-merger filingrequirements exist in the United States and EEC, permits now a look

ceedings in federal district court, sometimes taking months before the order is issued.Id.

165. J. William Rowly, International Mergers: Antitrust Notification Requirements, IN-

TERNATIONAL MERGERS AND JOINT VENTURES, FORDHAM CORP. L. INST. 221, 236 (B.Hawk, ed., 1990), previewing Rowly, INTERNATIONAL MERGERS-ANTITRUST GUIDE (Sweet& Maxwell, eds.).

166. Id. at 236, 265.167. Id. at 268 citing 15 U.S.C. § 18(a)(h).168. Id. at 240.

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at some of the options which could afford greater cooperation in thisarea between the United States and the EEC.

Perhaps at the modest end of the scale, competition authoritiesinvolved might explore how to improve their communication amongthemselves. 169 This may help alleviate the anomalous reality mentionedabove where the dialogue exists between the competition authority ofone state and the commerce ministry of the other under the "protectiveinterest" analysis. However, the Justice Department has noted,

[t]he amount of information that can be shared among au-thorities is severely limited by confidentiality provisions in ourrespective national laws. Accordingly, if much additional in-formation is to be shared by the various merger control au-thorities, the types of information sought to be exchangedwould have to be identified with some specificity, and nationallaws would have to be amended. 7 '

An assessment of the various confidentiality laws extant in membersof the EEC, and the relationship of those laws to the Merger Regulationand ultimately to the Treaty of Rome, would require analysis of sensitivemember state sovereignty issues; while worthy of exploration, this isclearly beyond the scope of this discussion.

Another option presented is to rely more heavily on obtainingforeign information from parties other than the competition authorities,while at the same time seeking an agreement among competition au-thorities to help their foreign counterparts by producing locally heldinformation."' Again, however, this appears to beg the question, forultimately the information comes not from foreign antitrust authoritiesbut from parties outside the merger agreement. This is obviously soin terms of relying on third party information to evaluate elasticities.

Proposals for information sharing agreements pursuant to com-petition regulation have not been one-sided. Preeminent in this dis-cussion must be the recent United States-EEC antitrust cooperationproposal by European Commission Vice President Sir Leon Brittan.In a speech at Cambridge University, Sir Brittan said:

I personally favour, to start with, a treaty between the Eur-opean Community and the U.S.A. It would provide for con-

169. Charles Stark, International Mergers and Joint Ventures: A View from the JusticeDepartment, INTERNATIONAL MERGERS AND JOINT VENTURES, FORDHAM CORP. L. INST.,

21, 31 (B. Hawk, ed., 1990).170. Id.171. Id.

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IND. INT'L & COMp. L. REV.

sultations, exchanges of non-confidential information, mutualassistance, and best endeavours to cooperate in enforcementwhere policies coincide and to resolve disputes where they donot. Disagreements should be discussed frankly and, whereverpossible, only one party should exercise jurisdiction over thesame set of facts. 172

While this language imparts greater purpose to the agreement than theexchange of notifications and consultations under OECD and the bi-lateral agreements discussed above, it is clear that a prominent featureof any US/EEC bilateral agreement in the area of antitrust must includeinformation sharing provisions.

It could be that with the passage of time, parties will perceivetheir notification and consultation needs met through existing channelsof the OECD agreement. However, as already discussed, informationfrom third parties remains a critical issue, as they, not the parties tothe transaction, have "the most reliable evidence on entry barriers,the ability of customers to substitute, and ability of foreign parties toenter the market in response to a price increase and other matterswhich drive the elasticity analysis."' Elasticity concerns are not con-fined to analyses under the U.S. Merger Guidelines; as noted in partI, article 2 of the EEC's Merger Regulation requires the EuropeanCommission to factor in "the structure of all the markets concernedand the actual or potential competition from undertakings located eitherwithin or (outside of) the Community."'17 4 Specifically, the Commissionis to consider the market positions of the firms concerned, the alter-natives available to suppliers and users, their access to supplies ormarkets, and any barriers to entry in assessing whether the proposedmerger is compatible with the Common Market. 17 5

One approach recommended to establish a ready supply of thirdparty information to foreign discovery requests is that of an internationalconvention providing for mutual provision of product and market in-formation sought by foreign authorities. 7 6 Again, however, given thepassage of time this approach may duplicate provisions under the

172. GLYNN, supra note 153, at 44, citing Jurisdictional Issues in EEC CompetitionLaw, Address by the Right Honorable Sir Leon Brittan, Hersch Lauterpacht MemorialLecture, Cambridge University (February 8, 1990).

173. Id. citing Glynn & Tahyar, Obtaining Data on Elasticities and Foreign Competitorsunder Hart-Scott-Rodino, 1988 FORDHAM CORP. L. INST. 3-1 (B. Hawk, ed., 1989).

174. COUNCIL REGULATION, art. II, supra note 46.175. Id.176. GLYNN, supra note 153, at 48.

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OECD. It may be possible to simply amend the OECD to bring third

parties to mergers under the proposal, and to provide that data from

those firms routinely will be made available to requests from othermember states.

Ancillary to these proposals is a review of the procedures underwhich results of antitrust investigations are reported to the public. The

factors supporting a competition authority's decision in individual merger

cases, thumbs up or down, should be made available to to help guideinvolved parties' future conduct. In this arena, there is room for

improvement within the United States, as explained thusly in a panelon international mergers and joint ventures:

If (the Department of Justice or the Federal Trade Commis-sion) elects not to challenge a transaction, there will be nocomplaint and no published opinion, and the basis on which(they) elected to bring a challenge will typically be knownonly to (them), and to some extent, to the lawyers and econ-omists for the merging parties who participated in persuading(them) not to bring the action. On the other hand, if the(Department of Justice or the Federal Trade Commission

elects) to challenge a transaction, in most instances the partieswill call off the transaction.'

This shroud of secrecy is a side effect of the unique nature of mergercontrol in the United States, as explained in Part II. Because of thecourt's limited role in merger reviews, the reviews generate relativelyfew judicial opinions. While there may be indirect ways of learningwhat factors drove the decisions to challenge or leave intact the proposedmergers, "[In the final analysis, while the main instrument of mergerpolicy in the United States is the agency's decision whether or not toprosecute, there is no regular mechanism for reporting the analysisthat underlies such a decision.' 1 8 Even though none of the proposalsreviewed calls for the uniform sharing of factors that underlie enforce-ment decisions, it is a safe bet that parties to the agreement who provideinformation will want to witness the use of that information when itproduces a result adverse to the providing parties' interests.

Whether any of these proposals or conventions could serve as a

catalyst for an international commerce ministry is unknown. Such a

177. George Hay, Panel Discussion: International Mergers and Joint Ventures, IN-

TERNATIONAL MERGERS AND JOINT VENTURES, FORDHAM CORP. L. INST., 95, 97 (B.Hawk, ed., 1990).

178. Id.

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ministry could be responsible for documenting production facilities ofall firms located in party states, and could serve as a central repositoryfor import-export data. In addition, depending on the sophisticationand level of automation of such a ministry, a data base built oninternational product characteristics and consumer profiles could bemaintained. If market prices and trends are built into the data base,it should be possible to quantify product elasticity to project internationalmarket responses in a more standardized fashion. Indeed, the devel-opment of such a data base would lend itself greatly to an after-the-fact analysis of the effects of merger decisions, an exercise not routinelyperformed now, as mentioned earlier. Given limitations on domesticdata sources, however, it may be difficult to conceive of how such amodel could be built in an international setting, accommodating dif-fering languages, different units of measurement, differing currencies,and qualitatively different consumer cultures. Nonetheless, it is con-vincing that since market and product data are at the core of mergeranalyses, the trend in the future will be away from ad-hoc assessmentsof elasticity, which take into account whatever information happens tobe available, and toward uniform, international assessments driven bysophisticated and well maintained data bases.

V. CONCLUSION

It is clear that both the United States and the European Communityrecognize that anticompetitive activity abroad can profoundly affectdomestic economies. As a result, there is authority on both sides toapply domestic antitrust regulations to foreign activity. Under inter-national law, countries exercise jurisdiction only when sufficient effectswithin the acting state are felt from the activity under review. As aprinciple of comity, as well, states will respect the sovereignty of othernations and refrain from exercising jurisdiction under certain circum-stances. As shown, however, neither of these principles is adequate foraddressing which state should exercise antitrust enforcement wheregrounds for asserting jurisdiction are equally divided.

In analyses conducted under both the EEC Merger Regulationand the U.S. Merger Guidelines, it is clear that markets and suppliersof firms are becoming increasingly international in nature. Thus, thelikelihood that merger reviews conducted internally will focus on factorslocated outside domestic boundaries is increasing. It is clear that beforejurisdiction can be allocated, sufficient discovery must be conducted tosee where the predominant acts and effects take place. Likewise, sub-stantive review relies entirely on the accuracy of the data utilized incomputing market share, geographic markets, product profiles, and

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market elasticity. Especially in the latter category, it is critical that datafrom foreign firms, often third parties to the merger under review, beobtained. The difficulty experienced in procuring these data from foreignsources underscores the necessity for a bilateral agreement to cooperate,(or at minimum not obstruct through blocking statutes) in antitrustinvestigations. It is hoped that, through the exploration of the com-plexities involved in international regulatory schemes, skepticism aboutthe possibilities of an agreement have been preempted by an under-standing of the need to agree, if on nothing else than to agree, before1993 arrives.

Sabrina Haake*

* J.D. Candidate, 1993, Indiana University School of Law-Indianapolis.

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Documents

Antitrust in the United States and European Community ...These laws and enforcement authorities are not limited in their effects to the United States. Enforcement efforts of the Antitrust